Read this headline and think this true. It’s the rule in trading, because you can’t win constantly and eventually you must lose, even several trades in a row. How much you will lose in that negative period depend only on you and your risk management. Do you have one?
Risk management is related with your trading plan
If you don’t, you must made it quickly as possible. Soon as you realize how important this is, sooner you will save your money and account. Not only that, but you can save yourself from falling in to negative metal state, which can ruin even bigger period of your trading. I know that you ask yourself now, how to know what is acceptable risk? Well, based on my experience, it’s all related with your trading plan. Because, if you have a plan to make a 100%, then 10-15% is acceptable risk, right!? If you have a plan to make a 500%, then 30-35% or even more is acceptable risk as well, right!? Sure, you must reduce your risk if everything is going fine regardless to your plan. Take the bigger risk in the beginning and the smallest at the end. Because, there is huge danger to ruin everything at the end if you take a constant risk. If you risk too much constantly in every trade, you will lose big eventually for sure!
Quick and huge loss is very difficult and most of the time it’s imposible to return
This is the rule traders. Why? It’s not only a matter of your trading skills and expertise. There is a question about psychology as well. Each trader want’s to return the loss quickly as possible because he’s thinking of this; if I lost my money quick, I can return it same way. But, that’s not possible because you are not able to make right decisions short term with huge loss thinking on your mind. Pressure is to big. You must be calm for trading with no emotions at all. It’s easy to lose big and it’s not easy to return that! If you risk to much in one trade, maybe you will need days or weeks to cover that loss, if you manage to return it at all. Huge and quick loss will make the extraction where you just make mistakes in order to get back as soon as possible and you will eventually lose everything. Trust me, I felt it a few times in my FX career. Let me show you what I mean in my old example of loss.
Now when you see this, return from huge loss looks even more impossible, right!? Sure, quick loss is related again with big leverage and that’s what I always said is the most important decision when you trade forex. If you want to be secure from huge loss, you must have account with low leverage. Because, if you have the opportunity to trade huge, you will try eventually. The most dangerous what could happen is to won a few times. After that you will be tempted to try again and the agony can begin. You are not a machine and the only tool what can save you from this is the leverage on your account.
Leverage and which one to choose
Read my article exclusively about the leverage.